Jan 2, 201307:39 AMVan Lines
with Joe Vanden Plas
Fiscal cliff notes: Whatever we’re paying these guys …
(page 1 of 2)
So our fearless leaders in Washington have reached a last-minute deal to avoid the fiscal cliff. Don’t you just feel like giving them all a big hug?
After weeks of scaring the daylights out of consumers, and suppressing what should have been a solid holiday season for retailers, President Obama and Congress managed to do what should have been done months ago. Hail the conquering heroes – with a Bronx cheer!
Put aside for one moment whether going off the cliff would actually have resulted in a recession, which is probably true. The fact that it got to this point should tell even low-information voters (see Jay Leno’s dope-on-the-street interviews) that Washington is dysfunctional. Let's see, we get an impactful bill that was passed at the last moment, with no time for lawmakers to read or understand what they were voting for, and with no time for the Congressional Budget Office to score its fiscal impact beforehand.
Bravo, ladies and jerks.
Here is why this dog-and-pony show is a pox on everyone’s house:
President Obama: If public opinion polls are any indication, the President will escape the blame for this near fiasco, when in fact he’s as much to blame as anyone. His dismissal of House Speaker John Boehner’s offer to eliminate tax breaks for the wealthiest Americans, which would have raised an estimated $800 billion in revenue over 10 years, prolonged the foolishness. The President preferred an increase in tax rates, and Republicans eventually compromised on that point, but he could have gotten even more revenue by closing loopholes.
According to the Wall Street Journal, when Speaker Boehner reminded the President that he offered $800 billion in new revenue by eliminating tax breaks that benefit the wealthy, and asked what he would get in return, the President reportedly replied: “You get nothing. I get that for free.”
Wow! The President could have gotten more revenue over time by eliminating tax breaks, compared to the roughly $600 billion he gets with a small increase in tax rates, but he chose to drag this out until the very last minute just to get a little movement on rates. Could he have brokered a truly balanced deal earlier if he had not been so obstinate? Perhaps, but that was never his goal. Let's stop the pretence that he cares about the fiscal train wreck he's steering us toward. He doesn't.
The best way to raise tax revenue, Mr. President, is through policies that promote stronger economic growth, not by raising tax rates. Even with mediocre growth in fiscal year 2012, the government gained about $344 billion more in revenue, according to U.S. Sen. Ron Johnson, R-Wisconsin, one of the few in Congress who actually cares enough to count (I’ll bet he actually reads bills he votes on, too). Double the current rate of growth to about 4% per year, and it’s reasonable to assume we’ll double the amount of additional taxes collected.
Compare that to the estimated $80 billion (top end) that would have been gained annually by letting the Bush tax rate cuts expire for, as our President calls them, "millionaires and billionaires" who earn $200,000, and it’s pretty clear that a robustly expanding economy is the key piece on the revenue side. Assuming that the expiration of the Bush tax rate cuts wouldn’t have dampened the economic activity that generates tax revenue, meaning $80 billion more in tax revenue would actually have been realized, that sum isn’t even enough to erase the shortfall from October of 2012, the first month of the 2013 fiscal year, when the government spent $120 billion more than it took in.
Moreover, about 75% of that $80 billion would have been offset by additional spending increases sought by the Obama administration during the fiscal cliff negotiations, so there would have been negligible deficit reduction. As it stands, the actual fiscal cliff deal increases spending, so while we avoided economically damaging rate increases, we get very little if any deficit reduction.
Now I know why the President used the term "shovel-ready." We're in a massive hole, and he keeps right on digging.
And then there was the surreal scene of the President holding a press conference on New Year’s Eve, complete with a cheering section of human props. There he was, after having focused exclusively on the tax side during the fiscal cliff negotiations, asserting with a straight face that there’s no way he’ll agree to anything but a “balanced” approach, much to the delight of the adoring crowd.
I’m not sure if this perpetual campaign stagecraft speaks to the man’s insecurity or his ego, but I suspect he has just enough self-love to die in his own arms.